Capital flows, corruption and government instability in the Philippines (1986-2005)
Date
2006-10
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Abstract
This paper explores the possible impact of corruption and government instability on long- term direct investments and short-term portfolio investments in the Philippines. The study is based on three traditional approaches to study the determinants of capital flows: investment climate, portfolio diversification and "push and pull" approach. Regression using the OLS method is employed in this study to see if corruption and government instability have any significant effect on capital flows. We also compare the results for long-term direct investments to that of short-term portfolio investments. Results suggest that indeed, corruption has adverse impacts on capital flows. Through comparison, we also see that direct investment is more sensitive to corruption than portfolio investments. Government instability, on the other hand, has been found to be negatively correlated with net capital flows but statistically insignificant in the determination of the net flows.
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Keywords
Capital flows, Corruption, Government instability, Philippine politics, Political corruption